Economic Growth Hinges on ’Frontier Economics’ of Entrepreneurial Upstarts

Press Release

KANSAS CITY, MO -- (Marketwire) -- 04/13/11 -- Immediately following the 2008 global financial crisis, many economists and market observers hastened to declare that the era of free markets was now over. America, and the world as a whole, they said, were trending toward greater reliance on government controls.

Contrary to those widespread predictions, the changing nature of economic growth means that prosperity is actually more, not less, reliant on free, competitive markets, according to “Frontier Economics: Why Entrepreneurial Capitalism is Needed Now More than Ever,” a report released today by the Ewing Marion Kauffman Foundation.

“Over the past generation, world economic policy has been dominated by greater reliance on market competition,” said Brink Lindsey, the study’s author and Kauffman Foundation senior scholar in research and policy. “Notwithstanding the recent financial crisis, there are good reasons to believe this trend will continue well into the future.”

Lindsey’s analysis focuses on the evolving requirements of economic growth as countries grow richer. “Imitative growth,” which comes from applying existing knowledge, becomes less important; “innovative growth,” which comes from new ideas, becomes more important. The world economy has entered an era of “frontier economics,” Lindsey says in the report, as growth is increasingly something that takes place at the technological frontier.

According to the paper, when countries are poor and less advanced, the economic future is relatively predictable. The example of rich countries allows policymakers in less developed countries to peek into the future and see the economic changes that need to be made. Consequently, there is less need for market competition to guide the course of development. But as countries successfully pursue “catch-up growth” and approach the technological frontier, the future grows increasingly uncertain. Now innovation, rather than imitation, is the key to continued progress, and the ceaseless trial-and-error experimentation of competitive markets becomes indispensable.

Meanwhile, the nature of the technological frontier keeps changing. Over the course of the 20th century, the central economic challenge was the fulfillment of basic material needs through mass production and mass distribution. As mass affluence spreads and deepens, though, the future course of economic development becomes increasingly unpredictable. Only wide-open competition among countless rival new ideas can solve the puzzle of increasing consumer welfare.

The richer nations get, the more they “rely on innovation to keep growth going -- and, therefore, the more we need free-market policies that foster the creation of new businesses and the implementation of new ideas,” Lindsey said in the report. “If we are to rise out of the current slump and launch a new, 21st-century boom, it is in the direction of freer, more competitive markets that our policies must turn.”

“Frontier Economics: Why Entrepreneurial Capitalism is Needed Now More than Ever” is available at www.kauffman.org/frontiereconomics.

About the Kauffman Foundation

The Ewing Marion Kauffman Foundation is a private, nonpartisan foundation that works to harness the power of entrepreneurship and innovation to grow economies and improve human welfare. Through its research and other initiatives, the Kauffman Foundation aims to open young people’s eyes to the possibility of entrepreneurship, promote entrepreneurship education, raise awareness of entrepreneurship-friendly policies, and find alternative pathways for the commercialization of new knowledge and technologies. In addition, the Foundation focuses on initiatives in the Kansas City region to advance students’ math and science skills, and improve the educational achievement of urban students, including the Ewing Marion Kauffman School, a college preparatory charter school for middle and high school students set to open in 2011. Founded by late entrepreneur and philanthropist Ewing Marion Kauffman, the Foundation is based in Kansas City, Mo. and has approximately $2 billion in assets.

For more information, visit www.kauffman.org, and follow the Foundation on www.twitter.com/kauffmanfdn and www.facebook.com/kauffmanfdn.

Contact: Ben Branham 646-246-6147 benjamin.branham@edelman.com Edelman, Barbara Pruitt 816-932-1288 bpruitt@kauffman.org Kauffman Foundation

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